Apple Services: OS X and .mac for One Fair Price

It's not unlike questions raised here on Low
End Mac and elsewhere on the Mac Web, but Thylmann does some
number crunching. He makes a good point, as do some respondents to
his article.

The Numbers

Apple has 2.5 million OS X users and 2 million iTools users. If
all of those OS X users upgrade to Jaguar at $129 and all the iTools
users upgrade to .mac at $49 the first year, Apple would pocket a
tidy $420 million in one year. Nice.

Of course, not all OS X users will upgrade. Whether this is
because they don't hear about Jaguar or can't afford it or don't see
the need to is irrelevant. And some OS X users will get reduced
cost education and site license pricing, which will also reduce
Apple's take. Still, you've got to figure a minimum 1.5 million
upgrades at possibly an average price of $79.

The fate of .mac switchers is another story. Surveys on various
websites seem to indicate that maybe 15-20% of iTools users will sign
up for .mac. Let's call it 300,000 renewals at $49 each.

Between OS X updates and .mac signups, that's maybe $130 million.
Not a bad number at all.

The Package

Thylmann suggests that Apple stop selling the Mac OS and switch to
selling services - .mac plus OS X upgrades for $120/year. It's
an interesting idea, but not quite the right one.

He's right on the money: Apple should be selling services. They're
already doing it with .mac and the
OS X Maintenance Program. Services will provide Apple with a
much steadier stream of income than selling software updates.

Where Thylmann misses the mark is in suggesting that Apple stop
selling the Mac OS. That's just wrong, and it's the same kind of
thing a lot of businesses are rebelling against with Microsoft's
latest upgrade marketing system.

Apple should push services, but the shouldn't stop selling
software separately. Give the users a choice, showing once again the
Apple thinks differently than Microsoft.

The Price

Costs

What does Apple lose by offering a services package including OS
upgrades and .mac for $120 a year? Based on the cost of switching
from iTools to .mac and buying Jaguar ($49 + $129 - $120), Apple
would be out $58.

But is that number realistic? No, because Apple isn't the only one
selling Jaguar - some online dealers are already offering it at $10
off, and Apple has to sell it to them at a low enough price for them
to turn a profit. With Apple still refusing to offer any kind of
discount for current OS X users to upgrade to 10.2, a lot of
people who want to upgrade will be looking at alternatives to buying
from the Apple Store. Instead of taking in $129 for each copy of
Jaguar, maybe Apple only takes in $90 for each copy sold through
distribution. (Maybe more. Maybe less.)

Suddenly Apple's lost profit drops from $58 to maybe $20.

Benefits

It's no great secret that the same retailers will be selling a
one-year iTools, er, .mac package for as little as $80 or so,
although it looks like Apple will be collecting the $99 per year
after the first year.

But let's review the numbers. About 2.5 million current OS X
users. About 2 million iTools users. By offering OS X upgrades
(to those who already own OS X) and .mac for $120 per year,
Apple will probably convert a lot more iTools users and get a lot
more Jaguar upgrades. A lot more.

And I'm sure there'd be even better deals for educational
institutions.

The Market

I have no intention of signing up for .mac services. The only
thing I ever used was email. I would like to upgrade to Jaguar, but
not at $129. Amazon.com
's $79 after rebate offer was very tempting, but it's gone now.
Still, the price was right.

My wife is very impressed with iCal, so her business would be a
strong candidate for Jaguar - but at $129 times three iBooks, that's
a fair bit of change just to coordinate calendars. On top of that,
her employees would have to become acclimated to OS X, which
hasn't been installed on either of the blue iBooks.

Students, parents, home users, small office users - there's a
huge list of Mac users very concerned about value. The cost of .mac
is hard to justify, so a lot will be surrendering their mac.com email
accounts. And the cost of OS X 10.2 is hard to justify, so a lot
will postpone or skip upgrading, fragmenting the OS X market far
too early in the development cycle.

By offering a services package for $120 per year, the value
equation changes completely. We get our Jaguar for about the same
price we'd pay a discounter, we get to upgrade our iTools account to
.mac, and we stop griping about how Apple is sticking it to us by
taking away our email address or not giving us a price break for
upgrading to Jaguar. Apple gets a steady and growing income stream -
and keeps most of the OS X users on the same page.

One year. One price. Two system updates mailed on CD-ROM, the rest
available by download. $120 would be a fair price. $150 would
probably be very attractive. Much higher than that, though, and the
value diminishes.

Dan Knight has been using Macs since 1986,
sold Macs for several years, supported them for many more years, and
has been publishing Low End Mac since April 1997. If you find Dan's articles helpful, please consider making a donation to his tip jar.

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Welcome Image and Text

We believe in the long term value of Apple hardware. You should be able to use your Apple gear as long as it helps you remain productive and meets your needs, upgrading only as necessary. We want to help maximize the life of your Apple gear.